Heritage Auction Galleries, a Dallas based auction company, has agreed to purchase the entire inventory of...
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Heritage Auction Galleries, a Dallas based auction company, has agreed to purchase the entire inventory of $10 gold coins from a rare coin dealer in Europe. The transaction will take place in March and involves the purchase of 1,000 gold coins for a fixed price of $1,250 for each coin. Heritage would like to hedge this transaction using gold futures. A regression of the spot price of $10 gold coins on the futures price of gold has a statistically significant (slope) coefficient of 1.36 and an R2 of 0.55. One gold futures contract is for the delivery of 100 ounces of gold. How can Heritage hedge this transaction using gold futures? a) Should the company long or short the futures contract? Please input long or short in lower case. Your answer: long b) How many futures contracts should the company trade? Please input only the number of contracts to trade; round the number to the nearest whole number. Your answer: Heritage Auction Galleries, a Dallas based auction company, has agreed to purchase the entire inventory of $10 gold coins from a rare coin dealer in Europe. The transaction will take place in March and involves the purchase of 1,000 gold coins for a fixed price of $1,250 for each coin. Heritage would like to hedge this transaction using gold futures. A regression of the spot price of $10 gold coins on the futures price of gold has a statistically significant (slope) coefficient of 1.36 and an R2 of 0.55. One gold futures contract is for the delivery of 100 ounces of gold. How can Heritage hedge this transaction using gold futures? a) Should the company long or short the futures contract? Please input long or short in lower case. Your answer: long b) How many futures contracts should the company trade? Please input only the number of contracts to trade; round the number to the nearest whole number. Your answer:
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Answer rating: 100% (QA)
a The company should short the futures contract b First we need to find the notional value of the go... View the full answer
Related Book For
Financial Accounting and Reporting
ISBN: 978-0273744443
14th Edition
Authors: Barry Elliott, Jamie Elliott
Posted Date:
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